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Economy’s spring rebound was stronger than expected

August 28, 2014, 12:49 PM UTC
(Photo by Andrew Burton/Getty Images)
Photograph by Andrew Burton—Getty Images

The U.S. economy’s second-quarter rebound appears to have been stronger than initially anticipated, as consumer spending, exports and state and local government spending all increased.

Real gross domestic product increased 4.2% in the second quarter according to the Commerce Department’s second estimate. That estimate is based on more data than what was used when the government released its first “advance” reading, which had indicated a 4% jump. GDP is the output of goods and services produced by U.S. labor and property.

The initial “advance” reading is based on incomplete data, and thus is often revised in later reports. In the first quarter of 2014, for example, an initial reading indicated that GDP grew a modest 0.1% though later revisions signaled that the U.S. economy shrank and posted its worst quarterly performance since the first quarter of 2009.

But the economy has bounced back in the months after a harsh winter temporarily dented the economic recovery. Federal Reserve Chairman Janet Yellen earlier this month weighed in on the economy at an annual meeting in Wyoming’s Jackson Hole, saying the economy has made “considerable progress” though the labor market has yet to fully recover.

“Housing, consumer spending, business capital spending, and government spending are finally all pulling in the same direction, which hasn’t happened in a while” said John Canally, chief economic strategist for LPL Financial.

“The general picture of economic growth remains the same,” the Commerce Department said. The upward revision reflected an increase in nonresidential fixed investment that was larger than previously estimated, while the jump in private inventory investment was smaller than early data had indicated.

Excluding the weather woes early in the year, Canally said underlying growth trends look strong, bolstered by banks lending a bit more, better deals on car loans and more refinancing, and subdued gas prices at the pump during the key summer travel season.

“While this GDP report is important, I think it is much more important as to what’s happening in this quarter, and the data indicators suggest [growth] is pretty solid at 3.5% to 4%,” Canally said.